Pop up goes the retail scene as store vacancies rise

Samantha, left, and Morgan Elias, twin sisters who founded Vintage Twin, a pop-up secondhand clothing company, at one of their pop-up stores in New York, May 25, 2017.

As traditional retail stores close and vacancies mount, landlords across the country appear newly receptive to leases as short as a week, eschewing the typical 10-year time frame, even in locations that once shunned limited stays.

The upswing in pop-up stores, as the short-term placements are called, is playing out in all sorts of ways, and in all sorts of places — including dark malls, former grocery stores and shuttered art galleries, according to real estate brokers, landlords and tenants.

For retailers, the stores can offer lower rents and far less commitment. For the landlords, the reason is just as clear: A short-term tenant is better than no tenant at all.

"Landlords have their backs against the wall right now," said Samantha Elias, the co-founder of the Vintage Twin, a secondhand clothing company whose stores frequently pop up in Manhattan. "I tell them that some money is better than no money, and I promise not to bother you."

The rise in pop-up stores is adding another element of change to a retail industry facing upheaval from profound shifts in consumer habits and powerful new competitors, especially online. In the past, short-term tenants focused on holidays like Halloween: Costumes were hot items in October, but sales evaporated once the calendar turned to November.

But today, the products go far beyond monster masks, to skin serums, designer handbags and crystal champagne flutes, as brands see pop-ups as an opportunity for quick public exposure or as a possible steppingstone to something bigger. And while some landlords continue to shun short-term deals — arguing that the rents, which are generally below market rate, do not justify the trouble and cost involved with preparing a space — they are quickly dwindling in number.

"The trend has become more prevalent in the last year or so," said Karen Bellantoni, a vice chairwoman of RKF, a retail-focused national brokerage firm.

RKF does not specifically track pop-ups, which is also the case with other major firms. But the fleeting boutiques are an increasingly bigger part of agents' business, including in Los Angeles, San Francisco, Dallas and New York. "We're definitely seeing landlords looking for them," Ms. Bellantoni added.

Ms. Elias said she had also seen a change. In 2012, when she started looking for physical stores to augment her online business, she had to cold-call landlords directly, she said, because "brokers had never heard of pop-ups."

Landlords are finally coming around, she said, but they may have no choice, as stores continue to go out of business.

Ms. Elias added that "it must be really scary right now" for owners in SoHo, where most of her pop-ups have been.

But the new stores can cause landlords to lose money, said Stephen Summers, the managing director of Highland Park Village, an upscale shopping center near Dallas that is in the midst of a multiyear renovation.

In late 2014, Mr. Summers installed Goop, an online retailer founded by Gwyneth Paltrow, for a four-week run in a former grocery store at his historicred-tile-roof complex, a widely copied model for the 20th-century shopping center.

Because the store, at 20,000 square feet, was considered too large for Goop's needs, Mr. Summers had to construct a more intimate 1,500-square-foot berth, including dressing rooms. That renovation ultimately caused the deal to be unprofitable, he said, even though Goop drew so many customers that there were lines around the block.

But Mr. Summers said he was glad to have a relationship with the company. Goop, which has popped up in multiple spots, is planning to open permanent locations, and Mr. Summers plans to court the company. "Pop-ups are a responsible way to grow," he said.

Like Goop, other web-born businesses are seeking a bricks-and-mortar presence as well, aware that most shopping is still done offline, and are turning to pop-ups to get their start.

For instance, Daniel Wellington, a six-year-old watch company with a heavy social media presence, has been selling its timepieces in part through department stores like Bloomingdale's and small jewelry shops. But in November 2015, it opened its first temporary store in the East Village of Manhattan. A year later, it opened one in nearby SoHo for two months. Because that location was a success, Wellington signed a more permanent six-year lease for the same space, said Ola Melin, a company spokesman.

Wellington also has pop-ups in Boston, Miami and Honolulu, among other cities, Mr. Melin said.

In SoHo, where pop-ups are especially popular, the range in rents can be significant. Long-term tenants have been paying in some cases up to $150,000 a month, brokers and tenants say. But pop-ups can get deals for $25,000 a month. They generally pay all their rent upfront and agree to leave with a few days' notice if a longer-term tenant is signed.

While some buildings may be hard to get into, others seem more inviting, like 543 Broadway. That is where Vintage Twin — which is owned by Ms. Elias and her twin sister, Morgan — has been set up since April, and which bustled with shoppers on a recent weekday afternoon. A tie-dyed Grateful Dead concert T-shirt from the 1990s was $244.

Several pop-ups have set up camp at the address, a Beaux-Arts edifice, since Carlo Pazolini, a shoes and accessories store, closed in 2015 after a four-year stay.

"To keep the neighborhood alive and vibrant, you need to have retailers occupying space, especially in today's day and age," said Jared Epstein, a principal of Aurora Capital Associates, the building's landlord.

Similarly, last year, Aurora installed the Broadway Market Company, a pop-up with various vendors who sell handbags, jewelry and stationery, in a vacant building it owns nearby. Its lease is expected to run about 18 months.

Likewise, an Aurora-owned building in SoHo in May welcomed Artists and Fleas, another market with tables and racks from different vendors, which replaced a 10,000-square-foot Armani Exchange store that closed in March. Artists and Fleas has committed to a one-year lease, Mr. Epstein said.

Swooping in to capitalize on the rash of empty stores in New York and elsewhere are some new brokerage-type businesses, which charge fees to landlords as brokers do and also sometimes market spaces concurrently with other agents.

Examples include Space in the Raw, a two-year-old firm that for about a month last fall joined Taco Bell with Sony PlayStation for a SoHo pop-up, in its first New York retail deal.

There is also Appear Here, a four-year-old British company that opened a New York office in April. Since then, it has found homes for dozens of pop-ups, said Ross Bailey, its chief executive, including Misbhv, an apparel company, on East 34th Street, in a part of Midtown where empty stores are evident.

Mr. Bailey says that contrary to popular belief, young adults want to touch what they buy and also enjoy the physical shopping experience. Besides, "it would be a sad world if everybody was staying at home looking at screens," he said. This month, Appear Here raised nearly $13 million in venture capital, bringing its total in raised funds to about $21 million.

But in a way, pop-ups, despite their growing ubiquity, are like Band-Aids on deep wounds when it comes to the problem of stubborn vacancy rates, brokers say.

"Rents are just too high, and it's just too cost-prohibitive to be here," said David Barreto, the founder of Cast Iron Real Estate in SoHo and someone who encourages landlords to do what it takes to fill spaces. "It's really just sad."